Changes on Check Clearing

The Check Clearing for the 21st Century Act (commonly called Check 21) went into effect October 28, 2004. The intent of the act is to eliminate check clearing delays, chiefly by eliminating the requirement that checks must be physically transported to the banks that issued them in order to be cleared for payment. Additionally, under Check 21 banks will no longer be required to return cancelled checks to their customers. Banks may instead return photographic images. (AKA 'substitute checks')

One result of the faster check processing will be a much shorter float period. (float being the gap in time between when your client presents a check for payment and when the funds are withdrawn from your client's checking account)

Checks may be processed much more quickly for certain types of checks they write, primarily those for large amounts that are sent out of state. The upshot is that clients can no longer count on drafting an NSF check that they plan to 'cover' at some point in the future. (At the same time, Check 21 does not change the rules with respect to the length of time a bank can hold for clearance checks deposited by your clients!)

While Check 21 allows for check image processing, it does not require it. As a result, only some 12% of all commercial banks are estimated to begin implementation of the system this year. This number is sure to rise rapidly in the next few years.

Quoted From – National Association of Enrolled Agents Newsletter October 29, 2004